Daily Market Outlook, February 7, 2020
There was some consolidation in the Asian market after the recent increase in risk appetite. The coronavirus outbreak remained the market focus, with S&P lowering its forecast for Chinese GDP growth this year to 5% from 5.7%. This assumes the virus is contained by March.
Earlier this morning, Germany released very weak December industrial production figures showing a fall of 3.5%m/m. The German industrial sector has contracted in the past six quarters.
All eyes will be on today’s US monthly labour market report. With market watchers expecting the economy added 180k jobs in January, up from 145k in December and above the consensus forecast for 165k. That would be broadly in line with the 2019 average (as it currently stands before revisions), consistent with solid jobs growth, especially since the middle of last year. Markets also expect the unemployment rate to remain at a five-decade low of 3.5%, while average hourly earnings growth is predicted to rise to 3.1%YOY from 2.9% YOY.
The ADP report on Wednesday revealed a stellar increase of 291k in private sector payrolls, owing in part to the mild temperatures which resulted in fewer seasonal layoffs. However, it’s not clear to what extent, if at all, that is reflected in today’s ‘official’ figures. Other evidence for January jobs conditions in the US has been mixed. The four-week moving average for initial jobless claims continued to fall,a positive indicator for the labour market, but the ISM non-manufacturing employment index fell to a four-month low. The latter, though, may reflect increasing recruitment difficulties rather than slower demand. Overall, today’s numbers – important though they are – are not expected to provoke a near-term Fed policy move. The Fed will release its Semi-Annual Monetary Policy Report to Congress today ahead of Chairman Powell’s testimonies next week.
Japan household spending plunged; wage growth stalled at year-end: Household spending dropped 4.8% YOY in December (Jan: -2.0%), marking its third back-to-back contraction that reflects the immediate effect of the newly imposed higher sales tax in October last year. Spending had surged by 9.5% in the month prior to the tax hike and the resulting contraction at year-end suggests that Japanese consumers were still making adjustment to the higher tax rate. Meanwhile, wage growth stalled in December, consistent with its flattish trend since October as labour cash earnings were unchanged in the last month of 2019 (Nov: +0.1% revised), which explains the lack of inflationary pressure in the economy despite a super tight labour market.
Australia recorded smaller surplus; retail sales dropped after Black Friday: Australia recorded a smaller trade surplus of AUD5.2b in December (Nov: AUD5.5b revised) as imports picked up at a faster pace (+2.4% vs – 2.8%) following a drop in November while exports saw a steadier 1.4% MOM (Nov: +1.3%) increase. Exports to China gained 11.9% MOM (Nov: +9.1%) while exports to Japan and Korea rose by 6.1% and 17.4% MOM respectively. Retail sales meanwhile fell by 0.5% MOM in December (Nov: +1.0% revised), as Black Friday sales distorted Christmas spending and partly due to the disruption of the wildfire crisis. Australia services activities in contraction: The AiG Performance of Services Index slipped to 47.4 in January (Dec: 48.7), marking its second month in contraction area that indicates the deteriorating conditions in the services sector
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.0900 (EUR320mn); 1.1050 (EUR789mn); 1.1100 (EUR502mn)
- GBPUSD: 1.2950 (GBP324mn); 1.3000 (GBP520mn)
- USDJPY: 108.60 (USD1.1bn); 109.50 (USD627mn); 110.00 (USD1.4bn)
- AUDUSD: 0.6700 (AUD275mn); 0.6720 (AUD283mn); 0.6750 (AUD271mn); 0.6774 (AUD207mn)
Technical & Trade Views
EURUSD (Intraday bias: Bearish below 1.1030)
EURUSD From a technical and trading perspective, the failure below 1.0980/60 is a significant development exposing binds and stops below 1.09. On the day 1.10 resistance 1.0950 pivotal support, below here look for a quick move to test 1.09 bids & stops below. Only a daily close above 1.1030 would frustrate bears and suggest yet another false break.
GBPUSD (Intraday bias: Bearish below 1.3010)
GBPUSD From a technical and trading perspective, anticipated test of the yearly pivot underway, a closing breach of this level opens a test of bids towards 1.28 and stops below. On the day only a close back through 1.30 would confirm further range trade.
USDJPY (intraday bias: Bullish above 109.60)
USDJPY From a technical and trading perspective, the sustained grind higher continues, as 109.20 caps corrections look for a test of offers and stops to 110.50. Caution counselled as we test these levels with significant sentiment divergence likely to be addressed once again.
AUDUSD (Intraday bias: Bearish below .6720)
AUDUSD From a technical and trading perspective, as anticipated the failure to close above pivotal resistance at .6760 is a concern for bulls, without a close above this resistance swing lows with vulnerable for retest, beyond here look for a move to test price projection at .6600.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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